New FHA Rules – Will These Changes Hurt The Housing Market?

Home Facts: What is the FHA?  The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved. FHA insures mortgages on single family and multifamily homes.  It is the largest insurer of mortgages in the world, insuring over 34 million properties.

HomeFacts Two: What is Mortgage Insurance? Mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. There are other providers of Mortgage Insurance based on the mortgage origination.

The FHA said new rules in effect in April will raise annual insurance premiums for most new mortgages by one-tenth of a percentage point. Also, most borrowers will be required to pay mortgage-insurance premiums throughout the life of the loan. Historically homeowners could cancel, and stop paying for mortgage insurance when the outstanding loan balance reached 78% of the original principal balance.

FHA is a major player in the housing finance sector. FHA's share of single-family-home-purchase loans is about 26%. About 78 percent of those loans were made to fist time home-owners. The FHA is different from the role that Fannie Mae and Freddie Mac play. The FHA doesn't "buy mortgages" from banks like Fannie and Freddie but the FHA insures approved mortgages.